Sunday, September 8, 2013

Food Security or Land Reforms Bill Will Prove Curse For Congress Party ?

Bills won't win polls--

BYSwaminathan S Anklesaria Aiyar

ET 08th September 2013

The Congress party is feeling good after passing its two new bills on food security and land acquisition in Parliament. It believes it has occupied the moral high ground, and left the BJP making vague, unconvincing objections. The Congress hopes these bills will prove vote winners in the general election next May. These are delusions of grandeur. In fact, the bills are more likely to lose than win votes for the Congress.

First, voters are utterly cynical about new laws supposed to deliver Utopias. For example, the claim that the Right to Education would actually ensure decent education for all is today a sick joke. The NGO Pratham reports that, for all the ballyhoo, educational outcomes are going from bad to worse.

Second, elections are fought on very local issues in each constituency, not on the so-called national issues that occupy newspaper headlines and TV prime time. The best proof comes from the 1996 election. The country had just gone through five years of unprecedented economic reform. When the Congress lost badly, many analysts argued that voters had rejected economic liberalization.

The issue was put to the test in a survey by India's top psephologist, Yogendra Yadav. He asked voters whether they were aware of any change at all in economic policy, and if so, whether it was a good or bad idea. An astounding 80% said they were not aware of any change. Of the balance, 11% approved and 9% disapproved of the reforms. The key lesson was that the big ideological debates in New Delhi mattered little in grassroots campaigns at the constituency level, where a local lathi charge or fertilizer shortage was far more likely to decide the outcome.

Now, there are exceptions to this rule. Every now and then, an issue becomes so large and emotive that a national wave sweeps local issues aside. One example was the dramatic toppling of Indira Gandhi after her Emergency of 1975-77. Sympathy waves helped the Congress sweep the polls after the assassinations of Indira Gandhi in 1984 and of Rajiv Gandhi in 1991. But no land acquisition or food security bill can create such waves.

Congress attributed its victory in the 2009 election to MNREGA, the rural job creation scheme. In fact the party swept all the big cities, proof that record GDP growth was the main winning factor. Congress fared badly in poor rural states like Bihar, Odisha, Chattisgarh, and Madhya Pradesh, winning barely 20% of the seats. Clearly voters gave credit for MNREGA in these states to dynamic opposition chief ministers, not New Delhi.

Something similar will happen with the Food Security Bill and Land Acquisition Bill. There will barely be time to roll out the new laws before the general election. But to the extent there is any positive change, most of the credit will go to the local chief minister.

Can the new bills lose votes? Yes, indirectly. The Food Security Bill will cost maybe Rs 10,000 crore extra this year, and Rs 25,000-35,000 crore next year. Normally that would be affordable. But India is currently in a financial crisis: a crashing rupee threatens high inflation, investment funk, and lots of pain. Finance MinisterP Chidambaram has pledged to shrink the fiscal deficit to 4.8% of GDP. An extra Rs 10,000 crore on the food subsidy means an equivalent amount less in productive Plan investment. Foreign rating agencies are not amused.

Worse is the Land Acquisition Bill. This mandates a social impact assessment for every project requiring land acquisition, delaying such projects by at least one to two years. Now, the Cabinet is trying heroically to show it means business, and so has just cleared projects worth lakhs of crores. But many of these require land acquisition. So lakhs of crores worth of projects will now be delayed for a year or more. Chidambaram's claim that swift clearances will kick-start massive investment looks more dubious than ever.

To foreign investors and rating agencies, this is further evidence of deep structural flaws in India's political economy. In a quest for votes — which will probably fail anyway, the government is driving the economy downward. This is not the sort of government capable of, or even interested in, avoiding a crisis.

The result may well be a downgrade in India's credit rating to junk status. This will oblige pension funds and other foreign investors to exit from India. The rupee will fall further, inflation will rise faster, job and income growth will suffer more. That's a recipe for losing a massive number of votes. Whatever the long -term benefits, the new bills threaten to be major vote-losers in the coming election.